Money-Smart Solopreneur. Laura D. Adams

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СКАЧАТЬ paying down debt or saving more. But if working a W-2 job and simultaneously building your business on the side isn’t sustainable, it’s time to reevaluate your debt load.

      If you’re using credit cards and loans to finance a lifestyle you can’t truly afford, consider the consequences. Having little or no discretionary income can hold you back from building the business and life you want in the future.

      One way to analyze and monitor your debt level is to calculate your debt-to-income (DTI) ratio, which is how much you’re paying for debt, such as minimum credit card payments, student loans, auto loans, and mortgages, compared with how much you earn:

      DTI Ratio = Debt Payments / Gross Income

      A healthy DTI ratio is less than 35 to 40 percent. For example, let’s say the total of your mortgage payment, car loan, student loan, and minimum credit card payment is $2,500 per month, or $30,000 per year. If you earn $80,000 a year, your DTI is $30,000 divided by $80,000, which is 0.38 or 38 percent.

      It shouldn’t surprise you that the lower your DTI ratio, the better. Paying less for debt means you can increase your cash reserve and fund other savings goals. If debt is stressing you out, get serious about reducing your living expenses so you can pay it off as quickly as possible.

      You can reduce your debt faster by tackling your highest-interest debts first, so you can whittle down your loan balances more quickly. Also consider refinancing or changing payment plans on student loans to make debt more manageable.

      If you’re young or just starting your career, you may have more debt and fewer assets than older people. The real value of the financial ratios in this chapter is that you can use them to analyze your finances over time, so you can spot trends. Pat yourself on the back when your DTI ratio goes down and your cash reserve ratio goes up!

Stay Focused on the Positive

      If you don’t currently have any safety nets in place, don’t beat yourself up about it. Instead of dwelling on what’s wrong with your finances, think about what’s going right that you can be grateful for. I promise that whatever your situation may be, many people would love to switch places with you. Here are some ways to stay focused on what is positive in your financial life:

      $ Thoughts and beliefs always precede actions, so reframe how you think and speak about your finances. Never say that you can’t increase your income or that you should cut your spending. Instead, say “I want to increase my income,” or “I will cut my spending.” A shift in your language is the first step toward changing your mental attitude.

      $ Never believe that a financial challenge is a sign of personal failure or weakness. Whatever your situation, millions of people have struggled with the same thing.

      $ Taking some small steps to create more financial safety nets will give you peace of mind and put you in a better position to deal with any unexpected hardships.

      $ Try keeping a gratitude journal as both an outlet for negative thoughts and a place to write down at least three things you’re thankful for each day. The Five-Minute Journal (available as a book or a mobile app at Intelligentchange.com) is a perfect tool for daily gratitude practice.

      $ If you have persistent financial challenges or can’t seem to get ahead enough to create safety nets, talk to a wise friend, family member, or financial professional. They may be able to see options and solutions to your challenges that you’re overlooking.

Gather Your Data Exercise

      Audit your savings and spending by gathering financial data from the past few months from wherever you track it (such as a software dashboard, bank statements, credit card statements, or a manual checkbook). Answer the following questions:

      $ How much liquid savings do I have in nonretirement accounts?

      $ What is the total of my essential monthly living expenses?

      $ Do I have enough savings to cover a period of unemployment or low business income?

      $ What are my three biggest monthly financial obligations?

      $ What lifestyle changes can I make now to reduce expenses?

      $ Do I have a plan to pay off expensive debt sooner rather than later?

      $ Does my spending reflect my priorities and values?

      $ What changes am I willing to make that better align with my personal and professional goals?

      While money stress or anxiety may never completely disappear from your life, using safety nets to reduce it as much as possible can improve not only your business, but also your relationships, health, and sense of well-being.

      Next in Part II, you’ll learn critical aspects of organizing your business. We’ll cover what you should know about choosing the best business entity type and naming your venture properly. Plus we’ll review licensing, insurance, and banking rules that may affect your solo business.

      PART II

      ORGANIZING YOUR SOLO BUSINESS

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